Canadian myths about Spanish unemployment

People take part in a march against labor reforms in Madrid on Saturday, July 3. Facing a growing risk of a debt default, the Spanish parliament has quickly passed measures that make firing cheaper and even let companies talk their way out of collective bargaining agreements if times go bad.

Stephen Gordon at "the Worthwhile Canadian Initiative" blames the disproportionate job losses in Spain compared to the allegedly smaller differences in job losses between different American states, on the lack of fiscal federalism or alternatively monetary nationalism (the existence of national currencies).

First of all, Gordon's use of Fed districts are arguably misleading. If we look at data on the American state level you can see even bigger differences than between Euro area states. For example between May 2007 and May 2010, Nevada saw a 14% drop in employment while North Dakota saw an increase in employment by nearly 4% during the same period. Does that mean that Nevada should be sorry for having the U.S. dollar as currency instead of a "Nevada dollar"?

Why then has employment fallen more in Spain than in the rest of the euro area? Well, because output per worker has increased more. There are in turn two main explanations for that obvious accounting identity truth. One that I discussed in the previous post: namely that during the boom a lot of immigrants with low productivity got jobs in Spain, something which contributed to a much stronger increase in employment than in output during the boom years. When the crisis came, these low productive immigrant workers lost their jobs first, something which meant a bigger drop in employment than in output.

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